Basra Gas Company and CPECC secure deferred payment agreement for BGC Portfolio Rehabilitation Project

On or around March 8, 2016, Basrah Gas Company (BGC or شركة غاز البصرة) — a special purpose vehicle and joint venture of the Government of Iraq (51% ownership stake), Royal Dutch Shell (44% ownership stake), and Mitsubishi (5% ownership stake) — and China Petroleum Engineering and Construction Corporation (CPECC) signed a deferred payment (EPCF) agreement for the Basrah Gas Company (BGC) Portfolio Rehabilitation Project. The borrowing terms are unknown. However, is is known that BGC was expected to use the proceeds of the loan to finance a unit rates based EPC contract (worth $280 million) for 2+1 years with CPECC. The project has 3 components: (1) rehabilitation of the West Qurna 1 (“WQ1”) compression stations in DS6, DS7 & DS8; (2) rehabilitation of the North Rumaila natural gas liquids (NGL) plant (300 mmscfd); and (3) rehabilitation of Umr Qasr Port sperical tanks. The EPC contract went into effect on March 8, 2016. Project implementation was still ongoing as of August 2, 2019.

Additional details

1. In Chinese, a deferred payment agreement is known as 延期付款协议. 2. In a typical receivables financing agreement (or deferred payment agreement), the company that the project owner in the host country has selected as its engineering, procurement, and construction (EPC) contractor is also a lender to the project owner. The company assigns receivables under its EPC contract with the project owner to one of or more banks. Upon assignment of receivables, the bank or banks will release funds to the company so it can discharge its obligations under the receivables financing agreement as a lender. Receivables financing is also known as accounts receivable financing (finance) or A/R financing (finance) or 应收账款融资 (in Chinese). These other terms are used because the accounts receivable of a company (i.e., unpaid invoices) are being used as collateral to unlock working capital—typically in the form of a bank loan (‘receivables loan’). Sellers often face cash flow problems when their buyers do not make full payment at the due date of the invoice. A receivables financing arrangement addresses this problem by allowing them to sell their outstanding invoices to a bank at a discounted rate. This approach allows the seller to receive the remaining invoice amount before the due date of the invoice. The bank either gets its money back at invoice maturity through the seller (acting as a collecting agent) or directly from the debtor. 3. More likely than not, a Chinese state-owned bank signed an accounts receivable transfer agreement with CPECC to provide financing for the construction period of the project. In this type of arrangement, the exporter (seller) procures insurance from Sinosure and transfers its accounts receivable under the insurance policy to a bank. The bank then grants financing to the exporter (seller) and becomes the insured under the transferred insurance policy. When an insured loss occurs, Sinosure pays indemnity to the financing bank pursuant to the insurance policy and the Accounts Receivable Transfer Agreement. However, this issue requires further investigation. 4. This project is also known as the Rehabilitation Of Iraq South Gas Facilities Project, the Basrah Gas Company/Shell South Gas Facilities Rehabilitation Project, the BGC Rehabilitation Portfolio HP-Lpg Project, the Rehabilitation of Iraq South Gas Facilities West Qurna Unit Project. The Chinese project title is 壳牌伊拉克巴士拉天然气老厂改造项目. 5. The face value of the deferred payment agreement is unknown. For the time being, AidData assumes that it is equivalent to 85% of the value of the EPC contract ($238 million).

Number of official sources

4

Number of total sources

11